Personal Income Tax Extensions

With the federal government looking like it is about to default on its obligation to pay the nation’s debts, it seemed like a good time to remind everyone that it is possible to delay your annual obligation to file your income tax paperwork by submitting an income tax extension form, even though the federal government expects you to pay your taxes on time, unlike the government itself.

According to the IRS, you are able to postpone the date that your form 1040EZ, 1040A, or 1040 is due from April 18, 2011 to October 17, 2011 by filing form 4868.  An even easier way to delay the due date is to use tax preparation software to file for an IRS extension, since it will, e-file your federal extension form, make a payment of tax due, print a PDF copy of the extension you e-filed, allow you to see when your extension has been accepted by the IRS,  and access the forms you need to file a state extension by mail if necessary.

If you do need to delay your income tax filing and you owe taxes, be sure to pay a reasonable estimate of your taxes owed, or you can face stiff penalties.

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The news statewide is that the jobs count dropped and the unemployment rate ticked up in June, just as it did for the US as a whole.

To be the optimistic contrarian, I’m going to go out on a limb here and say that when we learn the comparable data for the Pittsburgh region in a little more than a week or so the jobs count will be up and the unemployment rate will drop.   What can we bet on that?

I am working on a predictive model of short term labor force changes in the region.  I should show more guts and put a more specific number on that prediction, but it isn’t quite ready yet.  Maybe soon.

A Look at Regulation in the Credit Card Industry

The Credit Card Accountability, Responsibility and Disclosure Act, (CARD Act) is now one year old, and the Consumer Financial Protection Bureau released data showing its impact on the credit card industry as it prepares to begin its role as regulator of consumer financial products later this year.

This data showed that credit card late fees dropped from $901 million in January 2010 to to $427 million in November 2010, due to a cap of $25 on the first late fee on an account and $35 for a second late fee within six months of the first offense, and  the number of accounts that were charged late fees dropped by 30%.

Also, the number of accounts that were impacted by an interest rate increase dropped from 15% a year to 2% in the year after the new regulations took effect.

The final change mentioned by the agency was a regulation that prevents credit card issuers from penalizing cardholders for going over the card’s limit, unless the cardholder requests that these charges be accepted.  As a result of this change, many credit card issuers have eliminated over the limit fees that were charged if a transaction pushed an account over its limit.  These fees were as high as $39 before the new rules were put in place.

However, not all of the changes that have taken place since the enactment of the CARD Act have been positive.  Banks have cut perks and added many fees in an attempt to make up the lost revenue, such as application fees, annual fees, inactivity fees, increased balance transfer fees, and even fees for receiving a statement by mail.

Another negative for consumers is that credit card interest rates have risen from 13.26% to 14.27%, making it more difficult to find a low rate credit card, and the amount of available credit has dropped from over $4,400 to $3,900 on the average account, which can hurt those with a high utilization or those who need to apply for a new card.

Overall, the act seems to have accomplished its goals of providing consumers with more information about the cost of credit and the consequences of carrying a balance and protecting cardholders from predatory practices by issuers, but that protection has come at a cost, especially to those with poor credit or lower incomes who have been effectively shut out of the credit market, leaving the results of this regulation mixed at best.

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Incentives Matter

Why is there widespread cheating by America’s educators? According to Diane Ravitch, who is the research professor of education at New York University, it’s not teachers and principals who are to blame; it’s the mandates of the No Child Left Behind law, enacted during the George W. Bush administration. In other words, the devil made them do it.

While Williams is correct in sarcastically noting the lack of moral fiber among America’s educators, it is worth pointing out that Ms. Ravitch does have a legitimate complaint about No Child Left Behind. Consider the mandates of the bill, as summarized by Wikipedia:

No Child Left Behind requires all government-run schools receiving federal funding to administer a state-wide standardized test (all students take the same test under the same conditions) annually to all students. The students’ scores are used to determine whether the school has taught the students well. Schools which receive Title I funding through the Elementary and Secondary Education Act of 1965 must make Adequate Yearly Progress (AYP) in test scores (e.g. each year, its fifth graders must do better on standardized tests than the previous year’s fifth graders).

If the school’s results are repeatedly poor, then a series of steps are taken to improve the school. Schools that miss AYP for a second consecutive year are publicly labeled as being “in need of improvement” and are required to develop a two-year improvement plan for the subject that the school is not teaching well. Students are given the option to transfer to a better school within the school district, if any exists. Missing AYP in the third year forces the school to offer free tutoring and other supplemental education services to struggling students. If a school misses its AYP target for a fourth consecutive year, the school is labeled as requiring “corrective action,” which might involve actions like the wholesale replacement of staff, introduction of a new curriculum, or extending the amount of time students spend in class. The fifth year of failure results in planning to restructure the entire school; the plan is implemented if the school fails to hit its AYP targets for the sixth year in a row. Common options include closing the school, turning the school into a charter school, hiring a private company to run the school, or asking the state office of education to directly run the school.

The whole is nothing more than liberal nonsense. It’s predicated on the assumption that humans are born tabula rasa and that genetics do not have any correlation to intellectual abilities. In essence all children can be exceptional if only the stupid teachers didn’t hold them back. Thus, the bill attempts to incentivize academic improvement because the theory is that teachers are the ones who need prodded. Not once did it ever occur to the authors of the bill that some children are smart or gifted and others aren’t. It also never occurred to the authors of the bill that the recent failures of the education system aren’t due to a lack of funding.
Anyhow, No Child Left Behind makes the crucial mistake of allowing those who are handling the testing to determine the standards by which they will be tested. This already leads to a cheater’s mindset, since the states now have an incentive to play to their strengths and gloss over their weaknesses. The states also have lots of pressure to improve. Note that each state’s scores each year have to improve on the prior year’s scores (which, if one thinks about it, will eventually become mathematically impossible once one gets perfect scores) in order to have access to federal funding. Since humans vary significantly in ability, this sort of thing is impossible to keep up over time.
Of course, audibly observing that humans are not blank slates, and do, in fact, vary in ability is verboten. And so, as standards become increasingly and comically more difficult, the incentive to cheat becomes stronger, and downright necessary in some cases. Thus, as Ms. Ravitch observes, No Child Left Behind does deserve some blame for creating such a perverse set of incentives. Such is the price of folly.
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